Headwinds for coal

In a significant shift, government-run institutions financing overseas development have taken a series of steps this summer to sharply curtail their investments in coal-fired power plants.

In June, President Obama said that the United States would no longer finance coal plants through the US Export-Import Bank unless they used carbon capture and storage (CCS) technology or there was no other option for the poorest countries to generate electricity. In July, the World Bank announced it would provide financial assistance to new coal projects “only in rare circumstances.” And later last month, the European Investment Bank (EIB) said it would stop funding new and refurbished coal plants unless they emit less than 550g carbon dioxide/kWh (~1,200 lb carbon dioxide/MWh), about half of what the average U.S. coal plant emits.

It makes sense that financial decisions should factor in environmental impacts: Continued investment in an energy source that is only going to lead to increased costs from extreme weather and other climate change impacts makes no sense. As a practical matter, however, these steps by themselves are unlikely to slow the coal plant-building binge in China and India, or make significant reductions in the world’s greenhouse gas emissions.

In the past, these international finance institutions have weighed social and economic factors more heavily than environmental impacts, investing more than $11 billion in 55 coal projects since 1994, mostly in developing countries.

Now, the World Bank in particular perceives the effects of global climate change – sea-level rise and increasing drought in many developing countries – as direct threats to development worldwide.

By steering investment away from coal, these three institutions are saying that as governments try to extend power to the “energy poor” – the estimated 1.2 billion people currently living without access to electricity – they should favor low- and zero-emission sources whenever possible.

Already, the US Export-Import Bank has cancelled a two-unit 1,200 MW coal-fired power plant in Vietnam. The World Bank’s objective of fewer coal investments will soon be tested by a proposed 600 MW coal plant in Kosovo, although it could prove to be an exception. Some analysts believe the second poorest country in Europe has no good alternative to using its own relatively inexpensive lignite coal for baseload power. The Kosovar government is assessing whether it could meet its expected energy needs through a combination of energy efficiency measures and renewable power and will present its report to the World Bank in 2014.

Despite the positive steps taken by these three international financial bodies, coal use is expected to rise. The world now derives 40 percent of its electricity from coal. Thousands of existing coal plants, many without any modern pollution controls, will continue emitting carbon dioxide for decades. In the years ahead, many more plants are expected to be built, financed by governments, private lenders and other institutions. Globally, coal consumption is expected to increase nearly 60 percent over the next two decades, led by developing countries like China and India, which together will comprise 62 percent of the total global coal demand in 2035.

The issue is not solved here at home either. While few coal plants are presently on the drawing board in the United States, the Energy Information Administration projects that under a business-as-usual scenario, coal will still provide more than 35 percent of U.S. electricity in 2040 – down just barely from 38 percent in 2012.

To continue to use coal and other fossil fuels to generate electricity while protecting the climate requires that carbon capture and storage technology be deployed here and globally. CCS can capture up to 90 percent of carbon dioxide emissions from stationary sources, such as power plants and industrial facilities, and store them deep underground in geological formations.

While ramping down investment in coal-fired power plants is a step in the right direction, governments also need to ramp up support for CCS. We can’t both protect the climate and continue to use fossil fuels to power our economies without it.